Democratizing Justice: Can I crowdfund my lawsuit?

by | Apr 28, 2021 | Litigation & Local Counsel | 0 comments

It’s no secret that litigation is expensive. Some plaintiffs use litigation financing when they can’t front the fees and costs themselves. The funder (typically a specialized litigation finance company) agrees to privately finance the litigation in exchange for a percentage of the plaintiff’s recovery. If the plaintiff loses, the funder gets nothing.

Crowdfunded or crowdsourced litigation is a similar way to help finance a lawsuit, but it differs from traditional litigation finance in that the funder is a large group of people (a crowd) contributing relatively small sums of money through online platforms. Crowdfunding is especially well suited for compelling human-interest cases, like a client facing life-long injuries or a community seeking to stop a particular environmental hazard. 

For example, in 2018, the TIME’S UP Legal Defense Fund raised more than $24 million from over 21,000 donors using a GoFundMe page—the most successful fundraising project in GoFundMe’s history (the average successful crowdfunding campaign raises around $7,000). In 2019, the TIME’S UP Legal Defense Fund committed to funding 200 sexual harassment and related retaliation cases. The funding is used to hire experts, pay for arbitration fees, mediators, and depositions, and help attorneys fight against well-resourced employers.

In Texas, craft brewer Deep Ellum Brewing Co. raised more than $34,000 from over 340 donors using an IndieGoGo campaign they called “Operation Six-Pack To-Go.” Deep Ellum sued the Texas Alcoholic Beverage Commission (TABC), claiming the state’s rules prohibiting craft brewers from selling their beer on-site for off-premise consumption were unconstitutional. Although a federal court granted TABC summary judgment, dismissing Deep Ellum’s claims, the Texas Legislature responded by amending state law to allow certain craft brewers to sell beer to-go. Misinterpreting the amended law, TABC still prohibited Deep Ellum from selling beer to-go. Cobb & Counsel represented Deep Ellum (now affiliated with CANarchy Craft Brewery Collective) in a lawsuit against TABC and won.

In addition to well-known crowdfunding platforms like GoFundMe, there are a number of websites designed specifically for litigation crowdfunding, including LexShares and CrowdJustice. LexShares enables crowdfunding of commercial lawsuits, including contract disputes and intellectual property and copyright infringement cases. Investors must be accredited investors, so the typical investor is a high net worth individual or institutional investor. Anyone can contribute to a campaign hosted on CrowdJustice, which is open to all kinds of matters.

In December 2020, Avalanche blockchain announced the creation of a first-of-its-kind token, the Initial Litigation Offering (“ILO”), a blockchain-enabled litigation financing product open to all investors. The payout will be tokenized and delivered as a digital asset. The first ILO by Avalanche seeks to raise funding to support Apothio LLC v. Kern County, State of California, related to the destruction of 500 acres of hemp crops worth approximately $1 billion.

To comply with ethics rules, there are some restrictions on how a litigation crowdfunding campaign can operate. Communications used to solicit funds must be truthful and should not include confidential or privileged information about the client’s matter. It must be clear that the funders cannot interfere with or otherwise exert control over the lawyer’s work—the named plaintiff is the priority, not the funder. Donation-based campaigns, where donors do not receive anything of value for their contribution, have the most reliable ethical footing for purposes of litigation crowdfunding. 

While litigation crowdfunding is not a panacea providing universal access to legal services, it can broaden access by allowing a client to obtain legal representation they cannot other otherwise afford and by allowing a law firm to take cases it wouldn’t accept on a contingency basis. The continued growth of litigation crowdfunding—and the introduction of ILOs—promises to provide greater access to the justice system for under-resourced civil litigants.

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